Becton Dickinson & Co (BDX) May 12, 2026 Conference Transcript

Howdy. Travis Deed, the medical device analyst at Bank of America. Next up, we have Beckham Dickinson, Tom Poland, CEO, and Vitor Roek, the newly announced CFO. He's been to Vegas a couple times, but this is his first Farside Chat as CFO. So welcome. Thank you. Thank you for having me. And maybe since it is your first fireside chat, maybe we'll start with, you know, you're just announced permanent CFO. Just kind of love to talk about your strategy as CFO. You know, what do you think is different? What do you think is the same as we, you know, see BDX in this role?

No, thanks for the question. And thanks for having me. I'm very happy to be taking this new role as chief financial officer in the search of people to time for BD. We just closed the transaction with Life Sciences last quarter. and we couldn't be happier with the new strategy that BD is taking. From a CFO perspective, I think the philosophy here is to be making sure that we are consistent and transparent, making sure that we understand the business drivers, and I actually feel that I'm very well positioned to do that given my more than two decades with the organization, and I can partner with Tom and the leadership team in order to drive that operation and unlock the growth that we are looking for while being very responsible, and that's going to translate into kind of a clear guidance and a lot of transparency on what we do. Also, I think one very important topic for me as a CFO is making sure that we take care of our capital allocation strategy. We have been very clear on our priorities are from a capital allocation, focusing on the share buybacks, maximizing the shareholder return. I think based on what the share price is today, I think that's one of the priorities that we have on capital allocation. but also we continue to invest on the business focusing on tucking acquisitions to solidify our top line growth and taking care of our balance sheets delivering the leverage that we have been committing of 2.5 times so those are going to be the priorities and supporting this strategy and unlocking the growth so I would not say it's a complete transformation from what we have in the past I think it's more sharpening our focus and making sure we can deliver the numbers that we have been promising I think we had dinner last night, obviously, so I think two things that stood out to me at dinner was, one, the guide that BDE is executing against now and has hit the last couple quarters on.

You were responsible for that guidance. And then, two, you've been an operator and worked in a lot of the businesses. I don't know if you want to elaborate on those kind of two points.

Sure, yeah. So, of course, I have been interim. I was interim as a CFO since December, but I was integral part with Tom and the leadership team in terms of building the expectations for this year. And again, the objective, as I said before, is getting that consistency and transparency. Where are we seeing the markets? We have the three major headwinds that we have been communicating on Alaris, vaccines in China. So we wanted to make sure that we put a guidance out there that reflects the underlying performance of the business. Meanwhile, we're being very clear on how are we going to get there. And from an operational perspective, yes. So I have been with the company for 20 plus years. I have worked in multiple regions in Europe and Latin America and North America. I have also had the chance to work in multiple businesses, even on our legacy life sciences businesses in biosciences, but also medication management, specimen management across the regions, and most recently supporting segments as well as the medical segment. So I feel that I'm very well positioned to drive that operational rigor that the company needs in order to drive the new BD strategy.

That's helpful.

And Tom, kind of new BD, been a BD a long time and kind of have a new strategy, new BD, new portfolio. like where do you kind of see bd today and kind of kind of the path forward here is this the portfolio the right portfolio for bd and and what's the plan to kind of execute yeah we're extremely excited by the portfolio of new bd we've spent the last um five years kind of reshaping being very very active in reshaping our portfolio of course starting with the separation of our diabetes care business as that wasn't the category that we wanted to remain in we then separated our v muller business um on manual surgery surgery products and then obviously most recently you You know, a really phenomenal transaction for our shareholders, separating our life science business to water. So you just step back, you know, at the beginning of just 10 years ago, right, our med tech business was about 60% of BD, or about $4.5 billion 10 years ago. And today that same med tech business, right, is now $19 billion. So we've radically, you know, shaped that up. Life sciences kind of was the same $3 billion business 10 years ago, grew a little bit, but not tremendously. And so now, as you look at BD, I think also for the first time ever, and I've been with BD 25 years, the clarity of our portfolio strategy is exemplified in how we've organized our segments. And now, of course, with reporting requirements, you can see the profitability profile and the growth profile of each of those very clearly. And they're clearly distinct. So obviously, our connected care business, we've got some phenomenal assets that we've built together there. Advanced patient monitoring, you saw that grow double digits in the quarter. Really phenomenal M&A deal for us, well ahead of our deal model, continues to have great momentum on the innovation side. Now we're integrating that with our medication management solutions by bringing APM, connecting it with Alaris and utilizing our AI platform and Kata to do that. You go over to our biopharma solutions business, first time that's ever been a standalone focus within the company. Again, extremely profitable, strong growth from biologics business. Now, Biologics, as we showed in the last earnings call, has reached 55% of revenue for our biopharma solutions business. Again, Biologics growing double digits now, driven in large part by GLP-1s, but also through other Biologics. We have our interventional segment, obviously, where all of our kind of physician-preferred products sit, and double-digit growth in Purewick right now. That's well over half a billion-dollar platform for us. Double-digit growth last quarter in tissue regeneration, again, becoming a greater mix within the surgery business portfolio. And then our PI business doing steady, and we've announced a series of new launches there, including Ravelo as an early launch in Europe. And then you've kind of got the fourth segment, which is what BD has been historically known for, which is our medical essentials business. It continues to be used by 9 out of 10 patients that are entered into a hospital. it's kind of the some people call it the anti-ai you know hedge program because it just it won't be impacted by ai it's everyone that that gets admitted to a hospital uses those products 35 billion devices 100 recurring revenue you know per year and that just generates a lot of cash that we end up utilizing to invest in those other three segments that we talked about as well as utilizing that to do other things that are value creating like share buybacks or focus tuck in mna When you think about the portfolio, you've kind of called out these double-digit growth drivers, drug delivery, APM, Purewik, advanced tissue regeneration.

What percent of your portfolio is growing double digits? What percent is growing kind of high single digits? And how do you get more of the portfolio in those faster-growing areas?

I'll turn it to Vitor in a second. But the good news is that, of course, those elements, they're becoming a larger portion of the company. And just given their scale, each of those are now scaled. like Biologics is over a billion-dollar business. Advanced patient monitoring is a billion-dollar business. All the other ones are north of half a billion-dollar businesses. And so as they're growing double digits, that's obviously weighting. I think the other thing that's really important to call out is each of those are accretive to the margin profile of the company. And so as they grow, there's also a very positive mixed benefit that comes along with that versus some of the other areas. As you think about how we break up the portfolio in terms of those areas, the categories that are also high single digits, versus then the low single-digit category? Maybe, Vitor, you can share.

Yeah, no, I think we mentioned before like 10% of our portfolio right now is actually on that decline situation with China, Alaris, and the vaccines. But I think if you break down the other 90%, I would say that about the double-digit growth rate, about 30% is growing at the double-digit rates, and we are investing behind those assets in order to continue to support the growth rates. We have another important piece of our businesses is around 25% to 30%, also growing at solid mid-single-digit growth, so 5% to 6% in several other categories. And we have, as Tom mentioned, another 30% on medical essentials that is more like the run rate of the healthcare systems, which is more on the low single digits. So all those are on the positive side, and we are investing on maximizing the double-digit growth markets that we are playing in, but also seeing how can we elevate the mid-single-digit growth to an even higher growth rate going forward.

And the 10% that's declining, there's kind of the three discrete headwinds, China, vaccines, Alaris, maybe kind of go through those. When do we actually see, you always talk about your underlying growth, like four and a half, you know, 5%, whatever. When do we start to see that to kind of show up?

So I'll start and I'll turn over to Tom. So from Alaris, we have a very clear view on that the Alaris is going to end up. So by the end of this year, we are finalizing the remediation that we have been committed to the FDA and the agency. to do. It was a three-year, so that's the end of it. In 27, we are going to hit a new run rate from a revenue perspective, which is going to be about $100 million. But of course, we're going to have a comparison to this year because that was the last upside year from the Alaris perspective. But we have very clear view on that. That's going to be the last year and that's going to solidify there. From a vaccine perspective, we called out about 25% reduction this year. We have seen the pharma companies also suffering from that perspective. We are not expecting necessarily the decline on the 25% continue because it will be a very dramatic situation for the health care system. But we are working very closely with the pharma company. So we are not expecting that level of decline, but we are still not expecting that to be like a growth driver for us in the near future. And China is the one that we are still working very close with. We are seeing what we have said before, that 80% of our portfolio is going to go through VBP this year. That remains true. But China continues, China government continues to look for other ways to contain cost. And we are just monitoring this very closely, Thomas.

It was very well said. So you'll likely have some visibility. Alaris, you kind of have good visibility on, right?

That's basically 100. That's extremely clear visibility. It's going to go to about 100 million next year. And then it'll start growing from that. So that creates that 200 base point headwind next year. You know, what's interesting is we'll be having record market share as that's happening. It's just the reality that with 60% of the market that we have, normally a normal cycle is you're replacing that every eight years or so. We just replaced it in three years. So we replaced about 20% of the entire market every year. If you think about the competitors in that space, they're still on an eight-year replacement cycle. they collectively across four competitors have about 40 percent the remaining 40 percent of the market and so they're on an eight-year cycle so they're replacing about five percent of the market all other competitors combined replace about five percent of the market every year again we replaced 20 percent ourselves so forex what everyone else does combined we've done every year for the last three years and that's just a you know a unique dynamic again put in perspective five percent of the market comes up for grabs every year from competition you know we've been very clear in the first six months of this year we've taken a point and a half of the market share right so think about it's about two and a half points have come up for grabs we've taken a large portion of that we're going to continue to focus you know our entire sales team for Alaris is moved because all Alaris customers essentially have brand new pumps they're less than three years old so they're not focused on defense they're focused heavily on offense and we've got a great platform obviously connected in with our new ai solution and kata creates significant benefits for for our customers and uh you know they're focused on helping you know customers advance advance care with with alaris okay and the vaccine do you have visibility kind of the summer when when contracts come up that's more when uh when the pharma company will start looking at placing their orders for next year and so again i think as vitor mentioned we don't expect uh and we have no signs as we're watching that there would be anywhere near another decrease like we saw this year as that reset. What the exact level is, you know, we can't, it's too early to say that, but certainly we don't expect a repeat of this year.

Okay. And then China is just kind of more the uncertain factor.

I think it's just a recognition that anyone trying to peg China out, you know, a year from now, you should do so, you know, with caution, just recognizing that the market is very dynamic and that it's it's continued to have a you know focused on cost constraints we do know that as we've said 80 of our portfolio will have gone through vbp it's very actively happening we're seeing it play out as expected this year we just also recognize that there's other you know whether or not it's drg or other mechanisms that are in discussion that haven't been implemented yet um there's a lot of local companies and and international companies lobbying against some of those which is they've been put on pause but we want to continue to watch that play out okay yeah so full and then when i think i think about kind of the macro you

know aca utilization there's medtech investors probably part of the reason why medtech stocks haven't worked is some worries on utilization so and you have pretty good visibility um yeah and utilization so what are you seeing from the utilization standpoint you think within our portfolio we're seeing strong you know solid utilization um obviously areas like blood collection sets, you know, are a good indicator of diagnostic testing.

You compare that to the Quest LabCorp volumes, diagnostic testing is pretty solid. And that's a good indicator of just broad healthcare consumption. Products like, you know, IV sets, which we have 70%, you know, share of, strong growth, right, in the US, you know, solid mid-single digit, you know, 6% plus kind of growth you're seeing. Some of that share gain, but at the same time, right, it's underlying utilization. That's the first thing you normally get when you go into a hospital is an IV set. You might put into your arm most likely a BD catheter. So I'd say from those indicators. And then some of our other solutions in a world where people are looking to save money and navigate a challenging economic environment, solutions like our ROA pharmacy robotics platform or what we're seeing with Pixis and our medication management suite where it's helping with nursing workflow. We're seeing strong demand for those types of solutions. Okay.

And then also on the macro side, inflation, that's probably another factor for worry on MedTech stocks. So I just want to understand where you are. You've talked about resins exposure. Do you have any computer chip exposure, memory exposure, and then how you kind of have visibility on hedges and on inflation? Yeah.

Go ahead. So as we mentioned, I think the biggest topic for us that we are monitoring is the price of oil. It's connected with the resin price. The resin price in the plastic is approximately 5% of our cost. And I think we have been able to implement hedges along the way, which are going to help us this year to kind of absorb those costs and making sure that we do not get a lot of exposure. But, of course, as this continued pressure on oil remains, those hedges are going to start rolling off, and there will be pressures from a cost perspective coming from this. But I think the team has been working on several levers in order to how to offset this heading into 27. In 26, we feel very confident that we have everything protected, but in 27, I think the work is right now happening already. We've continued to work with our ISC team, which has been proven year over year the capability of delivering high productivity. We're also working very heavily on the commercial aspect with price. That's something that we have done in the COVID times, and we actually have created a very strong discipline about price execution on the marketplace, and we continue to do that, and we are going to looking into alternatives to do and last but not least I think our portfolio I think we are investing on areas of high growth but also high margins and that should help us continue to offset those type of pressures inflation so inflation is real is there but I think we have enough levers and we know the path we have done it in the past and we're looking to continue to do that in the future and I think you saw us be top tier in navigating inflationary environment last time that happened post COVID one of the things we said is internally we said we're going to act early which we we did and that we were going to be the best in the industry at navigating and

i think we ultimately were right if you look at a three or five year basis we were top two in med tech from a both a gross margin operating margin you know performance over that time frame and uh and that i think it was a large part due to some of the actions that we took early on during the last inflationary cycle and so we're taking that exact same approach you know in this ecosystem we're not sitting around thinking that oil is going to to drop what we're going to assume it's going to stay high and we're going to take actions accordingly.

And your kind of leverage to offset, let's say things do get worse, kind of your leverage to offset that?

I think you heard Vitor talk about a few of them. One is, again, BD Excellence has become a tremendous competitive advantage for us. We've been operating at 8% productivity last year. We're operating it again this year. We announced that was, again, our productivity this past quarter. That's at a top decile level for sure within this industry and most, you know, other, pretty much every other industry um so that's a big competitive advantage um in those types of environments the other one is pricing right we flexed you know pricing um as appropriate and we have open discussions with our customers right where we have products that are primarily made of resins we talk about that those um may go up and we actually have put in during the last inflationary cycle we changed most of our contracts to have annual price increase clauses in them as well really the cpi you know we saw some numbers this morning obviously cpi is up you know in the threes um deeper in the threes now and so you know we have that ability within most of our agreements and again we actually have time later this this week after we leave the conference you know reviewing that with our team so you know they're they've been given tasks and we're following up with them on those actions okay that's helpful and just in total kind of the margin opportunity uh you're at kind of 25 margins which is your goal you got there does it get harder going forward to continue to expand margins at the same rate what are some of the levers on gross margin rnd sgna to kind of get leverage in the in the pno i can start and then so you know as we started bd 2025 um the first couple years most of our operating margin expansion came from leverage in opx and then you've seen in the last two years you know this being the third um that leverage really come from gross margin And we called it beforehand, for those who have known the BD story, we said, get ready, you're going to start seeing, as BD Excellence starts really hitting full steam, you're going to see operating margin expansion come from gross margin expansion. And it played out exactly as we said. It's going to continue down that path, right? We expect operating margin leverage to come primarily from gross margin. I think even this past quarter, obviously, we didn't have tariffs in Q2 of last year, so there's a tariff headwind. But if you take tariffs out and just say how did BD operationally perform X tariffs, it was 70 basis points of gross margin expansion and 50 basis points of out margin expansion with us reinvesting into selling as part of our growth strategy in between. But again, it was coming from gross margin. Why is it coming from gross margin? It's a combination of productivity that we talked about, and it's coming from our plant consolidation strategy. We've talked about we've cut our manufacturing plants in the last five years in half. We were near 100. We're now in the 50, about 50 range, and we still have some further consolidation that will go into the 40s. Those are projects we've been investing in over the last several years, and they're really just continuing to flow through, and those will hit the gross margin line exclusively as well. And then, obviously, the mix that we talked about.

Yeah, and again, I think this year we have been talking about the 25% despite the tariff impact, so we were being able to kind of deliver that. So excluding the tariff, we actually had an underlying expansion of our margins. We are monitoring the inflation, which is going to be the next topic heading through this. But I think we have, as Tom said, maybe the excellence and the commercial execution are going to be the key drivers for us going forward.

And when you think about this year, you've had kind of low single-digit revenue growth, mid-single-digit EPS growth. And we've kind of already kind of talked about low single-digit revenue growth next year. I don't think that's changing given the discrete headwinds we talked about earlier. Otherwise, the base is growing like seven, which is not possible. Is there any factors, I guess, the way to phrase it, next year that why EPS would have been and still be in the mid-single-digit growth range? I think it's too early.

Obviously, we're not giving guidance on 27 EPS, but we're focused on, obviously, optimizing that. More to come.

If I had to ask. The, if you go look at this year, kind of first half, second half growth, like one question we addressed and talked about last night at dinner, you know, what we see in our models, just looking last year, comps look tougher. And so what steps up in the back half of the year on an underlying basis? And so I just wanted to kind of address the underlying acceleration in the growth rates.

From a revenue perspective, I think we feel very good. I think we demonstrated the capacity of execution of our revenues. So we overachieve our expectations in Q1 and also Q2. We see the comparisons on the back half of the year fairly similar. We know, of course, that the Alaris situation is more acute and more pronounced on the Q4, given that last year was the largest number of Alaris for us. And this year we are coming down to the end of the remediation by the end of Q4. But I think if you think about our recurring business, We continue to see good progress with share gains across businesses like in MDS and specimen management in the U.S. market. And also our capital business continues to see very strong backlog. That gives us confidence on the back half of the year. So as we said, our growth on the back half of the year is going to be similar to the first half of the year. And that gives us confidence that we can continue to deliver on that number. The comparisons are fairly easy, not easy, but similar to the first half. Q2, you can argue, because last year we actually had a tough Q2, but it was actually because of an event that happened the prior year. But the baseline is fairly similar, so we feel very confident about the revenue on the back half of the year.

Okay, and the same thing, we stare at our models and there's the margins going higher from Q1, Q2, Q3, Q4. I just want to understand, like, the Q4 step up looks really big on margins. I just want to get the confidence.

So I think the margin story, I think, is very similar. So we have been implementing our media excellence operations, so driving volumes and savings on materials and other productivity factors. We have high visibility to those because of what we call the cap and roll, so everything gets capitalized and amortized. So we have very clear visibility on when that's going to happen. We also have the situation on tariffs that naturally because of the actions we have been taking, the dollar amount comes a little bit down, and it becomes an easy comparison in Q4 because we didn't have tariffs on the first three quarters of the year, in Q4. Actually, it was the highest quarter of tariffs that we have seen so far. It was about $90 million last year. So we see those factors. So the revenue continues to improve on the areas we are investing on because we are putting sales force behind like APM, which is high growth, high margins. Also in surgery, advanced tissue regeneration, which is also a high growth, high margin. Peripheral intervention also drives significant above company average margins. So those are actually the sales forces gaining productivity as we go through, which is going to give us confidence from increasing margin from a mixed perspective. And the productivity that we have seen our plants already operating are going to generate the P&R impact heading into the Q4 numbers.

And it's fair to say that, as Vitor said, essentially the $90 million in Q4 of last year, it's going to be a lower because of all the offsetting actions that we've done. We'll have a favorable number in Q4 for tariffs year on year because of all those offsetting actions that we've taken.

Yeah, and last but not least, I think if you see our revenue sequential, our revenue is actually higher on the back half of the year compared to the first half of the year. And our expenses are actually pretty steady with Q4 coming a little bit down, which is part of the execution of the $200 million cost-out program that we have already implemented. It's already well underway. We have already $150 million in motion. And that's expenses as they exit the organization in the back half of the year, we see the benefit on the operating margin as well. So it's a combination of the productivity of the plants, our higher operating expenses efficiency, and the leverage from the revenue perspective.

Okay, that's helpful. And then another factor I wanted to make sure we addressed is the chloroprep shithold. I think that's like a $480 million product. Is that right?

Well, we said it's about 3% of revenue, 2.5% of U.S. chloroprep of total B-revenue.

Yes, okay. Yeah, and there's a three-week ship hold, kind of the confidence that with the warning letter out there that that comes back on the market.

Yeah, as we said, pending the testing, we're quite confident. We haven't stopped making chloroprep, right? So there's never been a pause in our manufacturing. It's safe. There's no patient issues, no safety signals at all. We stand by the safety of the product. It's obviously our one large pharmaceutical manufacturing plant It's considered a pharmaceutical as a skin cleansing agent. Essentially, what we're doing is we're doing the exact same testing that we do for a product that we ship to Europe. So the exact same product is made on the exact same lines, gets a label for Europe. We typically do an additional testing loop on that product post-terminal sterilization, and we're adding in that same testing loop on U.S. product. Again, and that product is the exact same product that we have been testing that goes to Europe that we haven't had any issues with. So that's kind of why we, you know, adding in that same testing that's always gone well, that's already been started. Again, we continue to manufacture the product, and as soon as that testing would be completed, we'd resume shipping each of those batches. Those shipments don't go to the end user for the most part, right? So it's filling shelves at the distributor as well, so we're not expecting end user back orders. At this time, it would be refilling shelves at our distributors.

Yeah, and that's what's going to be from our revenue. What gives us confidence on the revenue is exactly what Tom just mentioned. We have inventories on the channel with distributors. Those are going to continue to feed the hospitals for utilization. And once we start releasing the product after the testing, that is a very well-known test that we have high confidence on. We are going to start shipping back to distributors to replenish that inventory so we do not see right now the revenue impact for us.

It's an extremely important product, obviously, that we take very seriously. It's used in about 95% of all U.S. surgeries. So you don't really see the risk of FDA saying, hey, you can't ship this or restart that in three weeks? This was a completely voluntary action upon our part. So we did that completely on our own. Our quality department took that action with no request from the FDA.

And then one last question, power report litigation. You won the first trial. And if there's anything you wanted to say on that before we close.

Again, we'll fight that litigation vigorously. That product's been on the market for 40 or 50 years. It's helped tens or hundreds of thousands of cancer patients you know navigate very safely it's a safe and effective product that's what the jury obviously found it's well designed and again and has a decades many many decades of success so great well thanks a lot i think we're out of time thank you thank you thank you